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Saturday, September 17, 2011

Tree House Education & Accessories Ltd:-Buy/sell/,growth prospects and recommendation,news and results,target price and analysis,view and outlook

Scripscan:Tree House Education & Accessories Ltd

Story:The company, promoted by Rajesh Bhatia and Geeta Bhatia, is in the business of education and operates pre-schools in India. As of June 15, 2011, it had 223 pre-schools under the brand name, Tree House, across 33 cities in India. Out of 223 pre-schools, 149 are self-operated or operated by the company and rest are through franchisees. As of March 31, 2011, self-operated pre-schools had more than 370 teachers and served more than 5000 students. The company has also branched into educational services to K-12 schools and provides such services to 12 schools with over 5000 students in 4 cities in India.The pre-school industry is highly competitive and unorganized, with no single company controlling a significant market share in the business. It faces competition from both organized and unorganized players in the market. Among the organized players, Kidzee, Euro Kids, Roots to Wings and Kangaroo Kids are major competitors in the pre-school business.The market for providing educational services to K-12 schools is highly fragmented and, hence, it faces competition from local players like Educomp, Career Launcher and Everonn.One of the ventures, Madhav Education and Research Institute India Private Limited, by its promoters is authorized to engage in a similar line of business. As such a conflict of interest may occur between the company's business and the business of the members of its promoter group and could have an adverse effect on business, prospects, results of operations and financial condition.148 of the 149 self-owned pre-schools of the company operate from rented premises, including those rented by the promoters of the company. If any of the occupation arrangements are terminated or not renewed on acceptable conditions, the pre-schools on these premises may have to be relocated, leading to disruption in operations. It may be unable to acquire new premises for these pre-schools and may be forced to close down some of these pre-schools. Further, it may be unable to acquire rented premises at acceptable rates and any costs incurred to relocate the pre-schools may have an adverse effect on the revenue and profits of the company. Importantly, students at pre-schools are usually from areas around the location of the pre-schools. Closure/relocation of such pre-schools may lead to reduction in the number of students enrolled.Operating pre-schools and providing educational services to K-12 schools are currently unregulated. Introduction of any law or regulations prescribing limitations on fees or minimum standards could adversely affect the profitability of the business. The Maharashtra government has already proposed to introduce a legislation to regulate fees in unaided and private schools within the state. Any regulations preventing or restricting pre-schools due to any child development issues can also affect the company's business model.In the education industry, leading companies such as Educomp Solutions, Everonn Education and Career Point Infosystems have PE of 8., 10 and 19 times respectively.Tree house delivered an EPS of 2.7 for fy11 which at present prices discounts it by over 50 times.This valuation is not sustainable,sell it to invest in educomp which is the leader and quotes at single digit valuations.

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